Summary of a Recent
Judicial Development in
Perishable Agricultural Commodities Act

Plaintiff Failed to Allege Compliance with PACA Notice Requirements

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In Andrew Smith Co. v. Paul's Pak, Inc., No. C-08-04802 RMW, 2009 WL 765687 (N.D. Cal. Mar. 20, 2009), the United States District Court for the Northern District of California held that a produce grower had failed to adequately allege facts showing that it complied with Perishable Agricultural Commodities Act (PACA) notice requirements and preserved its rights in the PACA trust assets, and therefore dismissed its claims against certain defendant-produce brokers.

Background

Andrew Smith Company, a produce grower, brought this action against several defendants for alleged violations of PACA arising from the defendants' alleged failure to pay for over $3 million worth of lettuce. Id. at *1. Certain defendants, who acted as brokers for their co-defendants, moved to dismiss the claims against them. Id.

Arguments

Andrew Smith argued that the defendants were "brokers" under PACA, so it had privity with the defendants and had satisfied PACA's notice requirements. Id. at *3. It alternatively argued that the defendants had control of the PACA trust assets and had breached their fiduciary duties, making them personally liable for the nonmoving defendants' PACA trust violations. Id. at *4.

Defendants argued that they could not be liable under PACA because they lacked privity with Andrew Smith. Id. at *3. They also argued that Andrew Smith had not alleged that they were "individual shareholders, officers, or directors" who could control the PACA trust assets, and therefore they could not be personally liable under PACA. Id. at *4.

Analysis and Holdings

Under 7 U.S.C. § 499e(c)(2), commission merchants, dealers, and brokers are required to hold proceeds from the sale of produce in trust for the benefit of unpaid "suppliers or sellers of such commodities or agents involved in the transaction, until full payment of the sums owing in connection with such transactions has been received by such unpaid suppliers, sellers, or agents." Id. at *2. There was evidence that the defendants were brokers for the other nonmoving defendants, but not for Andrew Smith. Id. at *3. Andrew Smith had apparently never provided notice directly to the defendants, which further evidenced their lack of a relationship. Id. The court acknowledged that "[i]ndividual shareholders, officers, or directors of a corporation who are in a position to control PACA trust assets, and who breach their fiduciary duty to preserve those assets, may be held personally liable under PACA." Id. at *4. However, there was evidence that the defendants were not in a position to control the PACA assets. Id. The court therefore dismissed Andrew Smith's complaint (with leave to amend) for failure to allege facts showing that it complied with PACA notice requirements. Id. at *5.

The case was decided on March 20, 2009.